How To Use a Trading Log Correctly «

Many traders keep a trading log detailing the trades that they have made (e.g. each trade’s entry, the resulting profit or loss, etc.). While keeping a trading log can be a very good idea, it is possible to use a trading log incorrectly, immediately making the trading log a very bad idea. It is important for traders that keep a trading log to know how to use their trading log correctly, so that the trading log benefits their trading, rather than being detrimental to their trading.

The Correct Way To Use a Trading Log
For discretionary traders, the correct way to use a trading log is to make sure that their analysis is consistently (or still) being performed correctly. For example, at the end of each month, a discretionary trader might re-analyse their charts for the past month, and compare the trades that they would make to the trades that they did make (as shown in their trading log), to see if there any any differences (e.g. additional trades, less trades, trades that they would have managed differently, etc.).

For system traders, the correct way to use a trading log is to make sure that they are following their trading system correctly (and have not inadvertantly become a discretionary trader). For example, at the end of each month, a system trader might review their charts for the past month, and make sure that they have made the trades that they were supposed to make according to their trading system (e.g. have not made any additional trades that did not comply with the rules of their trading system, etc.).

The Inccorrect Way To Use a Trading Log
For discretionary traders, the incorrect way to use a trading log is to look for ways to modify their analysis to make different trades or make their trades differently. For example, a discretionary trader might review an unprofitable trade in their trading log, and determine that the trade would have been profitable if they had performed their analysis slightly differently, and therefore change their analysis accordingly (and incorrectly).

For system traders, the incorrect way to use a trading log is to look for ways to modify their trading system to make different trades or make their trades diffferently. For example, a system trader might review an unprofitable trade in their trading log, and determine that the trade would not have been made at all if their trading system used a simple moving average instead of an exponential moving average, and therefore change their trading system accordingly.

Are Trading Logs a Good Idea or a Bad Idea?
Trading logs can be a good idea for new traders that are trading correctly (i.e. have received instruction from, and are trading under the guidance of, an already established professional trader), but can be a bad idea for traders that are not trading correctly (e.g. that have just purchased a trading system that they do not really understand).

Professional traders sometimes keep trading logs (and many do not), but they usually do so for reasons that are not directly related to their trading (e.g. because they need to provide a list of their recent trades to their clients, etc.).